Investment into UK FinTech companies declined by more than 85% in 2016 compared to 2015.
According to KPMG’s ‘Pulse of FinTech Report Q4’16’, there was a “distinct decline” between 2015 and 2016 both in terms of M&A and venture investment activity.
FinTech firms in the UK raised $4.6bn in 2015, with the figure falling to $654m in 2016.
However, the report notes that in keeping with European trends, the volumes of deals remained healthy with 124 transactions completed during the period.
Additionally, the research showed that VCs continue to show a strong interest in the sector, with deal volume increasing to 96 from 93 in 2015, despite the value falling by 36% in the period.
Looking at Europe
Europe, the report adds, also saw total FinTech investment drop 80% from $10.9bn in 2015 to $2.2bn last year. The transaction volume, however, remained relatively resilient with 318 deals completing during the year.
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Commenting on the findings, Warren Mead, global co-lead of Fintech at KPMG, said: “2015 was an investment high and we are now seeing FinTech starting to gain scale as a result of that funding. This meant investors paused for breath in 2016 to see which FinTechs are likely to emerge as the winners before deciding where to place their bets.
“As a result, Europe saw a significant fall in funding which was also due, in part, to Brexit related uncertainties in the UK. Despite this, the UK Government and regulator have indicated they are committed to supporting and promoting the fintech sector and London remains a dominant force with the European FinTech market – five of the top 10 European FinTech VC deals happened here last year.
“If 2015 was an investment party, then in 2016 the Shoreditch hipsters got back to work – the hard slog to success starts here,” Mead concluded.
The Payment Service Delivery Directive 2 (PSD2), the report says, is going to be a game changer in Europe, creating demand for niche FinTech companies which can create specialised offerings that might not be profitable without the open data mandate.
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The report also said that InsurTech is expected to be an attractive area of investment throughout 2017.
Additionally, growing applications of innovative tech such as wearables, IoT and AI are also likely to attract funding.
“There is also likely to be increasing participation of tech giants in the FinTech sector,” the report concluded.